Most investors think that the only way to buy investment property is to save up some cash and then go to the bank for a loan. Many banks will want a 20% down payment plus 6 months reserve (cash in an account equal to 6 months of mortgage payments) to loan on an investment property. This can be $40,000 – $50,000 that an investor would have to save up for just to spend it on one property! Whether you are an experienced investor, or just getting started, this can be very discouraging.

Let’s go back to our original question: How to buy houses with little or no money and minimal risk? One of the most overlooked techniques of buying houses without banks is the lease with option to buy. This solution is only appropriate for those home owners who need to sell a house fast. It’s usually an extenuating circumstance that would warrant this.

What is a lease?

A lease is very simply put the right to possess, occupy, enjoy, and use a given parcel of real property. When a lease is executed a leasehold estate is created which is actually a form of personal property. This can eliminate a lot of the risks associated with property ownership. A properly structured lease will allow an investor, who will then be the tenant, to enter into a sub-lease with another tenant. This is also referred to as a sandwich lease.

Example:

The owner of a property needs to sell his house fast so he calls a local investor. The investor leases the property for the monthly mortgage payment of $1000 per month. The investor pays the seller $100 for the privilege of doing this transaction. The investor then subleases the property to a tenant for $1300 per month for a profit of $300. This is an example of a “sandwich lease”. The investor is the middle of the owner and the tenant and is “sandwiched” between them.

What about repairs?

The owner of a house, especially in the state of North Carolina, would be responsible for maintaining a habitable residence so the burden of repairs would fall on him. The investor who is the primary lessee would remain liable for making the monthly rent payment regardless of whether the tenant pays or not. So what happens in the event of the leaky faucet or stopped toilet? Traditionally the landlord would make all these repairs. However, the tenant and owner can enter into an agreement where the tenant will be responsible for the first $250 in repairs in exchange for the exclusive right to buy the property at a discounted price. This is where the option comes in.

What is an option?

Simply put an option is the right to buy or sell an asset at a specific price over a specific period of time. Let’s say the property is worth $250,000. Our seller is motivated so he gives the investor an option to buy the house at the current mortgage balance of $225,000. Let’s say the current market value of the property is $250,000—a nice spread. The investor then sells the option to the buyer for a discounted price of $240,000. This leaves the investor with $300 per month in cash flow, $15,000 in equity, plus whatever option money he is able to collect from the tenant-buyer.

Why do it this way?

The investor wanted to buy a profitable investment property without having to wait to save of tens of thousands of dollars. By the way, how much money did the investor have to come out of pocket in this example–$100!

Another benefit is that the investor has agreed to a lease and not a mortgage. Default on a mortgage can be devastating but defaulting on a lease if far less damaging. Also, the tenant buyer of a $250,000 house can reasonably be expected to come up with $5,000 to $10,000 in option money, making them a much higher quality tenant and less likely to default. By the way, that $5,000 to $10,000 is disposable income to the investor. Try getting that type of return with a bank loan!

This very brief article is meant to be an introduction to thinking about real estate in a different way. More education will be required for attempting this kind of transaction on your own. Feel free to post questions in the comments section.

Mike Otranto has been an active real estate investor in the Raleigh N.C. area since 2005. He began with 2 – 6 unit multi-family properties in downtown Raleigh and has since moved is focus toward single family residential properties. Always up for a challenge he shuns the long term mortgages offered by commercial banks in favor of creative financing strategies such as subject-to transactions, owner financing with purchase money mortgages, long term leases with option to buy, equity options, and more. He also holds a NC Brokers License. Visit Mike’s webpage at http://MikeOtranto.com or catch Mike on YouTube.

Maybe it is the flood of information coming from so-called guru’s who make it sound so much harder then it really is. They tell you to jump into buying short sales, foreclosures, lease options, forward flips, back flips and so on. Real estate investing can be simple. Before starting you need to determine if you are able to invest for long-term wealth and cash flow or do you need to create income streams right away.

If you need to generate cash right away you can start with flipping houses. Learn to put connect to motivated sellers, put houses under contract and assign your position to a cash buyer. If you are ready for an adventure and want to fix and flip, then begin understanding all the steps involved so that you can do it now.

1. Wholesaling

Connect yourself with a highly motivated seller who must sell asap at a big discount, learn to control the house without owning it, market and sell your equitable interest to another investor and collect your wholesale or assignment fee. Doesn’t that sound so simple? It is basically 4 steps and a risk-free way to begin investing in real estate when you need to create a pay-day asap. It is a nice way to build a real estate income stream without needing cash or credit.

2. Fix and Flip

You have seen this one repeated on TV. Find a totally distressed house in need of a lot of work, fix it up and sell it for a nice payday. They make it look like so much fun as they work through all the job-site drama! The truth about flipping houses is that it can be a roller coaster ride full of peaks and valleys because there are so many moving parts. You need to find the right house, for the right price, build a reliable contracting team, market to sell to a new buyer, hope they can get their financing, work through their home inspection and then collect your large pay-day. Your payday will not occur if you are way over budget on your renovation or you can not sell the house for as much as you had hoped.

My point is that the entire process much be managed carefully in order to reduce risk in this type of short-term speculator transaction. It takes a lot of experience and discipline to create a large payday in a short amount of time fixing and flipping houses.

If you can invest for the long-term then you can buy and hold real estate assets and build a portfolio of rentals. The good news is that we have a fantastic market to buy and hold real estate assets. Rental demand is the highest it has been in several years and although prices are inching upward, there are still great deals for diligent investors who know how to buy houses at discounts. The key is to focus your investment criteria, buy real estate without banks and attract great tenants.

The key to both begins with identifying your starting point and creating a path that leads to your success. Both road maps start with the verb “Learn.” It is the one activity you need to take for both paths. Personally I am a lifetime learner. When I was in college, I learned a lot about Electrical Engineering and how to be a great employee. When I left corporate America I had to “Learn” real estate investing and I continue to invest in my personal learning all the time.

There are lots of myths involved with investing in real estate and both can make you stray from your chosen path so I want to bust these 3 myths right now.
1. All houses are bought with brokers and banks. Let me assure you that this is just not true. Many of the very best deals available in your local market will never make it to the MLS. You can learn to connect with motivated sellers who must sell asap and must sell their homes as-is. These are typically homes that will not appeal to first time home buyers and will not qualify for typical bank financing. The circumstanes and conditions are what opens the doors for savy real estate investors to buy the houses at big discounts. Often times, the situations will also open the door for seller financing so you would not need to go get a new bank mortgage to buy their home.

2. All tenants are trouble. When I was employed in corporate America and had hundreds of employees I discovered that if I was diligent in my search, did background checks and verified the information on resumes I could be successful finding the right employees most of the time. The same is true with being a landlord. If you learn to carefully review rental applications, check references and previous landlords, verify employment and carefully screen tenants you can be right most of the time. It is not rocket science but does require processes and discipline to not just rent to the first person who has their deposit and want to move in asap.

3. All contractors are thief’s. The truth is that there are some great, reputable contractors who would love to help you rehab some houses. They need to be qualified before they work on your houses. Make sure they are licensed and insured, have great referrals and be sure to document everything with a solid contract, W9 for tax reporting and get copies of their license and insurance documents. Doing that front end due diligence on your contractor will allow you to feel much more comfortable.

What about you? Are you ready to invest for the long-term and build a portfolio of rentals? Do you need cash right away and need to flip some houses to pay down debt, quit your job or finally get ahead?

Take the time to honestly discover where you are at right now and where you need to go. Once you know your starting point you can build your personal plan to succeed massively by investing in real estate.

You want to invest in a home, but you have very little money saved and you can not get a mortgage. What are your options?

If you have money saved for a 20% down payment, good income, stable job and good credit, you should easily be able to get a traditional mortgage. That will disqualify most real estate investors. The truth is that even if you can qualify to go get a mortgage, you should not do it. One key to investing is to learn creative financing so you don’t need to rely on banks at all.

How would you like to buy houses without needing to get a new mortgage? Buying houses subject-to means that the buyer makes the acquisition without paying off the existing mortgage on the property. The ownership of the property changes to the new owner, but the debt does not get formally assumed and does not get paid off at closing. The mortgage remains in the name of the person who originally took the loan when the house was originally purchased.

Despite the mortgage-due-on-sale clause, sometimes a buyer can take over payments on an existing mortgage. It is not likely a bank will demand the full mortgage, if monthly payments are being made on time. These deals are called “subject to” sales. If there is equity in the deal, maybe the seller will hold a 2nd for it or accept a small cash down payment.

I was speaking to a good friend of mine in Colorado recently and he told me that he has now purchased over 100 homes for his rental portfolio, all acquisitions made using subject to financing. Subject to investing can provide opportunities to buy houses with no money down and without the investor needing to get a new mortgage.

The good news is that prices are going up again and there are tons of very low interest mortgages that could work great for subject to investing!

These opportunities are available from motivated sellers who need debt relief, have a sudden life change or just transferring to a new city.

While subject-to sales sound complicated, they can really be a great deal for both buyers and sellers with little money.

By Jim IngersollA lot of people are wanting to begin investing in real estate again.

They have heard the news that the market has reached the bottom and that this could be the best market of our generation to invest in real estate.

One big hurdle that everyone has to get over before jumping into today’s market is FEAR. My friend Dr. David Phelps summarized 5 commons fears like this:

1. Chicken little – market is just terrible… 2. You are “Too Late” to get in for the best deals 3. Landlord “HORROR” stories 4. ALL deals are always done with banks & brokers 5. I DON’T Know how to get started

Here are 7 traits of the investors that are capitalizing today and making a killing investing in real estate. Each of these traits and strategies for investing will help you overcome your own fear and allow you to move forward in today’s market.

1. Eliminate Bank Financing

Bank financing is a major pain to use. Yes you can get fantastic interest rates right now, but you have to go through a huge pile of documentation, loan applications, provide copies of your leases and practically offer blood out of your right arm to get the final loan approved. You will also be asked to put about a 25% down payment on your acquisitions. How many houses can you buy if you have to keep pulling money out of your checking account for BIG down payments? NOT MANY! Besides the tough under-writing on loans, the big down-payments, there are more problems with bank financing associated with Risk. Risk with banks comes in the form of full-recourse loans and personal guarantees that can put all your assets. If you eliminate the need for bank financing, you are free to buy as many houses as you want. 2. Build private lending network with financial friends with OPM

What does it take to eliminate bank financing? There are two ways to do it. First you can get seller financing. The good news on seller financing is that it is easier then ever before to get it. Did you know you can structure your seller financing to provide you with zero interest loans? How good would your monthly rental cash flow be if you did NOT have to pay any interest? The second way to eliminate the need for bank financing is using OPM (other people’s money) by jumping into the world of private lending. Millions of people are struggling to figure out what to do with their investment accounts. They are tired of losing in the stock market and tired of earning less than out inflation rate in Certificate of Deposits (CD’s). As real estate investors, we have the best solution to offer which is investing in local real estate assets using joint ventures. It is the ultimate winning combination. 3. Invest in assets

Everyone has choices to make with their time. You can work for income with a job or even earn a high self-employed income as a paid professional (i.e. Attorney, Physician, etc). The other option is to invest for the long-term in assets. Would you invest your time now for many future paydays innet worth in the form of net worth, equity and monthly cash flow? Another trait of highly successful real estate investors is that they invest for the long term buying rental properties. Buying and holding rental properties creates a nice positive monthly cash flow while tenants pay down the debt on the purchase. In today’s market, houses can be purchased cheap and rented high. We are buying houses at prices from the 1990’s and renting them at rental rates from 2012. That is an easy formula that leads to success for real estate investors! 4. Buy houses based on numbers, not emotions

A lot of new investors get caught up in the emotions of a house. They see the property with elements such as historic charm and character and then they know they can restore it to it’s former glory. Let me caution you on this using this approach when buying investment real estate. There are some very important numbers that you MUST know before committing to buy, here are some of them:

If you focus on these numbers you will find success by leaving your emotional ties to a house or neighborhood behind you. Think and Act like an investor and not as a home owner when buying investment real estate.5. Invest in yourself first

Are you tracking with me on these first 4 traits of highly successful real estate investors? I hope you are ready to move forward with your own plan to create cash flow and build your long-term net worth. Where a lot of investors fail is they do not invest in themselves. Personally, I am a lifetime learner and that is the 5th trait of being highly successful. You need to commit to invest in yourself first. Take time to read as many real estate investing books as you can, take time to read some of the excellent real estate investing blogs and take time to invest in real estate investing training.

Creating Wealth and Cash Flow

By Jim Ingersoll

I have had some Fantastic Coaching sessions recently focusing on creating wealth and cash flow by investing in real estate.

Here is a short summary of some of the content covered:

Just because you have a high credit score and the ability to get some bank financing doesn’t mean it makes sense to do so because of things like the never-ending sea of underwriting criteria that invades privacy, personal guarantees that are full-recourse and put all your other assets at risk, etc. Plus, so many people have marginal credit and limited cash reserves in this economy. No one should be left out and be excluded from capitalizing in today’s real estate market.

Debt is needed to build your assets, cash flow and net worth but it is a double edged sword that can crush your investment model if not managed carefully. Real estate is a debt intensive business, but when the debt is managed properly (i.e. Without banks) it can be used to highly leverage real estate in a safe manner that provides fantastic returns

Skills to go direct to seller, negotiate low or no interest owner financing are huge in todays marketplace

Structuring joint ventures with private lenders will allow you to build a big portfolio of rental properties without your own cash and without banks.

We are starting to see appreciation! It has been missing in recent years, but will have a huge impact as it compounds and values grow. If you have a $1,000,000 of assets and we receive 4% appreciation for the next 5 years, the value of the portfolio will go up to $1,216,652 just with appreciation!

Want to join in our monthly coaching with other investors from coast to coast? It is a great environment for learning how to put the pieces together and start to build wealth and cash flow today. The cost is just $97 per month and here is link to register Now!

You would not set out driving from Boston to Miami without a road map right?

Establishing your financial future is much the same way, you need to know your starting point and where you need to end up. Once you know starting and ending, you can fill in the “Roads” that lead to your end point.

You will receive $50 off the admission of $297 and still get to bring a guest for free. You will also receive a TON of unanounced bonus materials!

Talk about a great return on investment. Really, besides the $50 off, the free bonuses ask yourself what it is worth to have a your personal real estate roadmap What is the value of learning to create your own plan and be able to execute steps that lead to your financial freedom? It is PRICELESS and that is Why you should register today and join us on June in Richmond, VA.

As we near the bottom of our real estate market many investors are realizing that it is once again becoming a great market to begin buying houses again. Investor’s who can buy now can hold onto the investment for great cash flow or flip the house for an instant income stream today. It is the process of taking wholesale property and then transforming it into a great stream of income by flipping houses. Once you have found the perfect house you will need to begin planning your construction. Before even starting construction, it would be vital that you choose the best contractor for your investment business.

When I am looking for contractors I am looking for a long-term team member who can help me fulfill three specific needs I have :

1. Price

2. Quality

3. Speed

All three are very important to me. Licensure and insurance are a given. If they are not properly set-up I would recommend you keep looking for a good contractor. It is hard to find contractors that are fast, have good quality and excellent pricing. The good news is that in today’s economy it is possible to find them.

Decisions for your investment property improvement projects should be with a judicious manner. Although it can be a bit tempting to hire a company with the lowest bid, it would be still be wise to someone who does the job right and save money in the long run. Here are easy tips on how you can improve your chances of selecting a credible contractor the first time.

Begin your list with at least three to five general contractors. This list will serve as the starting point and this is also where you begin pre-screening them and end up with at least two or three good contractors that you want to bid on your projects. Unfortunately, this is also the point where many household owners end up with the wrong choices and costing them a good amount of money in the long run. The referrals from friends, family and relatives can be helpful but you would still want to look into what each company has to offer to ensure you get the best deals. You may want to check service magic or angies list. With Service Magic the contractors are typically a bit pre-qualified regarding licensure and insurance and you can find them in a wide variety of categories.

License: Make sure your potential home contractors are licensed and insured as well. Call your local state business licensing board to verify current licensure and ask about any complaints that have been issued to your potential home contractors. Also be sure to request a copy of both the license as part of your investigation. Contractors are licensed as a Class A, Class B or Class C and then there are also trade licenses specifically for HVAC, Electrical and Plumbing. Here are the classification’s for you:

Class A: Work on a single contract up to $120,000 or multiple contracts up to $75,000

Class B: Work on a single contract up to $7,500 or multiple’s up to $120,000

Class C: Work on single contact up to $1,000 or multiple’s up t $7,500

References: Talk to some of your contractor’s previous clients and references. There is no better way to evaluate potential contractors than by talking to their previous customers or checking out the finished work itself. If you get the chance to view some of the work that the company has done, don’t miss it. Ask the references specific questions regarding communication, project time-line, surprises, budget, etc.

Insurance: An absolute requirement for every contractor is a General Liability and Workers Compensation Insurance. If a certain contractor doesn’t have this kind of insurance, you could be the one held liable for any accident that can happen under construction premises while work is going on. Get a copy of the contractor’s insurance certificate from their provider before starting any project.

Complaints: Search for contractor reviews and complaints online. Run your very own background check on these contractors by searching for reviews and complaints from your potential contractions online. You can check out the Better Business Bureau site or other sites such as servicemagic or angie’s list.

Contract: Create and sign a good contract. Sign a good contractor that will protect the interests of both parties. Specify the tasks that need to be done, the duration of the project, its price and the payment dates. Don’t forget to be keen with the details. This is usually where 90 percent of the conflicts occur. The scope of work should include that they are responsible for any issues that may occur during the rehab. Residential rehab bids are often poorly documented with a lot of issues being overlooked, poorly defined or left out.

Permits: You should ask your contractors specifically about how they plan to handle necessary permits for the job. If they absolutely refuse to pull permits, consider this a red-flag in your search.

Change orders: Watch out for the change orders. Rehab construction has this element of unknown and other pre-existing conditions. These are conditions that may alter the original construction plan and are left inherent during the bid. Make sure the ‘change of order’ process is clearly defined.

Deposit: All contractors will want to have some funds up-front. Be sure that the construction draw process is clearly documented in the contract to avoid future misunderstandings. Be careful of contractors who request more than 50% of the work up-front.

Schedule: Speed of construction is a very important consideration. Be sure to clearly define the start date and expected completion date in the contract. Your holding costs on your investment will skyrocket if the construction takes a long time to complete.

No matter how long the search becomes, in the end, what’s important is that you get the best deal for your investment’s worth. The best deal consists of a combination of quality, speed and price. When searching for a great contractor you will want to balance the price, quality and speed of the project. Be sure you find a contractor who will be on your team and have your best interest as his primary objective. Keep in mind that you are providing the contractor with a large contract and entrusting them to do a great job, complete it on-time with minimal hassles.